Stock market correlations during the financial crisis of 2008–2009: Evidence from 50 equity markets

Juha Kotkatvuori-Örnberg, Jussi Nikkinen and Janne Äijö

International Review of Financial Analysis, 2013, vol. 28, issue C, 70-78

Abstract: Using data from 50 equity markets we examine conditional and unconditional correlations around two major banking events during the financial crisis of 2008–09. To measure the value of covariance information on the augmented DCC model used in the study, a portfolio in-sample estimation is performed. We show that by taking into account the change in the level of variance in high volatility periods, the estimates of the conditional covariance are more efficient in capturing the dynamics of the stock markets variance. Furthermore, in a two-asset allocation framework, the model consistently generates relatively low portfolio variances, implying substantial benefits in portfolio diversification.

Keywords: Dynamic conditional correlation; Financial crisis; Interdependence (search for similar items in EconPapers)
JEL-codes: G01 G11 G15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:28:y:2013:i:c:p:70-78

DOI: 10.1016/j.irfa.2013.01.009

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